UK - Industry experts have once again expressed concerns about the levelling down of pension income in the wake of the introduction of auto-enrolment, as a survey showed a third of large employers hoped to reduce pension expenditure in the coming year.

According to the Association of Consulting Actuaries (ACA) pensions trends survey, only a quarter of employers have so far budgeted for the reform changes, with several larger employers basing their budgets around an expected opt-out rate as high as 17%.

The ACA, gathering responses from nearly 470 companies with £118bn in scheme assets, found that around two-thirds of companies without a pension scheme had no intention of auto-enrolling employees, with the ACA noting that many therefore had not yet understood their new legal duties.

Commenting on the findings, ACA chairman Stuart Southall said: "They point to a rising trend among employers of all sizes to review existing pension arrangements and, given the economic climate, for a goodly number to seek ways to reduce their pension costs."

He said the results were disappointing, as there was a need to "boost rather than diminish retirement incomes" for the future, resulting in a "clear danger" of levelling down pension benefits - a view shared with the National Association of Pension Funds.

The organisation's director of policy Darren Philp said: "There has always been the risk that employers may level down their pension provision as a result of the 2012 reforms.

"This is why we have consistently called on the government to give employers more flexibility around the new rules to minimise the administrative burden and reduce the risk of levelling down."

Southall added: "With contribution rates into many schemes failing to keep pace with the pension costs of longer life spans, and with employers expecting and in some cases relying upon high anticipated levels of pension opting-out for budgetary purposes to keep their auto-enrolment costs down, warning bells are ringing."

He said he was unsure if the government had grasped the financial pressures about to befall auto-enrolment's target group over the next few years, with the survey finding that 21% of employers had reported increasing opt-out rates from existing pension schemes.

Southall said the government needed to encourage employers to offer more than the "basic" pension.

"The preparedness of employers to share risks, echoed by the survey results, and the endorsement of this approach by the Workplace Retirement Income Commission, to open up new pension designs, needs to be followed up with some urgency," he said.

A survey conducted last year by the ACA found that 40% of employers were preparing to level down benefits following the introduction of auto-enrolment.

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